Investigating Personal Remittances-Unemployment-Inequality Nexus in Emerging Markets

Authors

  • Kunofiwa Tsaurai University of South Africa

Keywords:

Inequality; Unemployment; Personal Remittances; Emerging Markets

Abstract

The paper investigated the personal remittances-unemployment-income inequality nexus in the
case of emerging markets using panel data methods and data from 2003 to 2016. The argument by in the
literature that income inequality is positively affected by its own lag was also supported when the dynamic
GMM approach was used as an econometric estimation tool. In general, personal remittances were found to
have increased income inequality because it is the rich who remit more funds back to the labour sending
country. Although the two models under the fixed effects produced mixed effects, both random effects and
the dynamic GMM approach shows that unemployment increased income inequality, a finding which is
consistent with theoretical predictions (Ayala et al. 2001). In contrast to majority of literature on the subject
matter, the pooled OLS noted that unemployment reduced income inequality. The results across all the four
econometric estimation methods produced results which show that the complementarity between personal
remittances and unemployment (a figure which does not take into self-employment enhanced by personal
remittances inflows) reduced income inequality. The finding therefore agrees with Anyanwu and Erhijakpor
(2010) whose study argued that personal remittances inflow promote the increase in small scale projects and
general self-employment, whose statistical figures are not factored when computing unemployment figures.
Emerging markets are therefore urged to craft and implement proper remittances inflow harnessing policies
to ensure that they contribute towards both unemployment and income inequality reduction efforts.

Author Biography

Kunofiwa Tsaurai, University of South Africa

Senior Lecturer, Department of Finance, Risk Management and Banking

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Published

2020-05-26

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